18 February 2013

Are the changes to higher education funding in England cost-effective?

At a time of significant change it is vitally important to map and understand the direct costs and benefits of the new funding regime. Given the potential for unintended consequences associated with any policy change, it is also important to explore the wider macroeconomic implications of the shift from direct to indirect taxpayer funding for higher education. 'Are the changes to higher education funding in England cost-effective?' presents new modelling of the higher education funding regime in England adopted from 2012. It is undertaken by London Economics on behalf of million+.

Overall, ‘Are the changes to higher education funding in England cost-effective?’ finds that “the combined costs of increasing higher education fees is estimated to be almost 6 ½ times as great as the potential Treasury expenditure savings."

Following a shift from direct funding of teaching via Hefce (Higher Education Council for England) to higher student loans, the overall reduction in Treasury expenditure for the 2012/13 cohort is estimated to be approximately £1.166 billion compared to the 2010/11 cohort.

However, the analysis in the report suggests that there are significant direct costs associated with the higher fees regime resulting from the much higher student loan book and the higher write-off of student loans (estimated to rise to almost 40%). In addition to these costs, higher tuition fees will be accompanied by reduced earnings and taxation revenues from the smaller number of graduates entering the jobs market and postgraduate education. On top of these effects, there will also be a significant inflationary impact.